Dear ALSB Colleagues,

        Let me take a stab at some of the questions posed.

        My university, the University of St. Thomas in St. Paul, Minnesota,
is located in a quiet residential area.  While I was an undergrad student
there in the late 70s, the university grew dramatically.  When I entered
college, students were required to live in the dorms unless married or
living at home.  By the time I graduated, there were long waiting lists to
get into the dorms, so upperclassmen began renting homes in the surrounding
neighborhood.  As this practice spread, the neighbors were upset by the
disruptions to their tranquil neighborhoods-parties, four rusty cars parked
on the street, etc.  Compounding the problems, "slumlords" would rent some
of the larger houses to as many as eight students.  The students were happy
with a lower per capita rent, and the slumlord was happy with the
profiteering.  The neighbors were not so happy.

        The City of St. Paul enacted an ordinance restricting the number of
unrelated adults who may live together in a single family dwelling.  I do
not know if the ordinance was every challenged, but I know it has existed
for nearly 20 years and is still enforced.  When neighbors have problems
with a student house on their block, they begin collecting evidence on the
number of residents - license plates, coming and going etc.  The St. Paul
Code Enforcement people then get on the case.  I cannot tell you the
consequences to the landlord and tenants when more than four occupants are
discovered, however.  The slumlording practices continues widely despite the
ordinance with an implicit understanding between the landlord and the
tenants.  Only four persons are named on the lease document even though both
parties know more will be living there.  The landlord says "Pay me the
exorbitant rent, and I won't ask how many students are living here."  The
students don't mind the substandard conditions as long as the rent is cheap
and the location is near campus.  A "don't ask, don't tell" approach.  I
like the cleverness of the student's argument in seeking to nullify a lease
as illegal due to the zoning violation.

        A relevant case might be: Eichlin v. Zoning Hearing Board of New
Hope Borough 671 A.2D 1173 (Pa. 1996), where the zoning board gave approval
for a group home for HIV residents despite a local ordinance restricting the
numbers in a single dwelling.  Also Nebraska v. Champoux 555 NW2d. 69 (Neb
1996)

        As for sororities, this has come up at our school as well, with some
of the national organizations wanting to establish chapters.  The St. Paul
ordinances have provision for boarding houses or frat/sorority houses to be
established in connection with a college or university.  The city will
permit it if the university supports it.  In our case, our university did
not support the frat/sorority houses, so the house could not be established
adjacent to campus.  The prohibition may be a legal one from the ordinance,
or a private one from university rules, or a combination of both.

        On the securities issue, I cannot speak to the specifics of the
securities law issue, but I can related real world experiences of an
acquaintance working in accounting for a Fortune 500 company.  I always
naively assumed that the profit and loss number were generated by the lower
divisions of the companies, taken as they were, then compiled and reported
by the upper level corporate reporting area.  In fact, the upper management
meets to determine the numbers that they wish to report to Wall Street that
will be in line with expectations and their preferred stock price.  The word
comes down from the top:  "Your division will report the following numbers.
Figure out how to do it!"  Then the division accounting types try to figure
out ways to shift income or loss from one reporting period to the other.
Sometimes a low period the company would recognize as much loss as possible
to get all the bad news out of the way and make the "turnaround" of the next
quarter seem more dramatic. Sometimes they push profit forward to inflate
the stock price for a transaction (or to exercise their stock options!)  The
only limits on pushing profit or loss from one period to the next seems to
be FASB and GAAP and other accounting standards, and how much aggressive
shifting your independent Big 5 auditor will tolerate without qualifying
their audit opinion.

        I think we and our business students need to be aware of this fairly
commonplace practice for massaging the numbers and bending the accounting
rules to report in public documents the financial results management
prefers.  One limit will be the legal restrictions of SEC rules with which I
am not particularly familiar, the second is the accounting rules which can
be fairly flexible and allow for a fair degree of manipulation limited
perhaps by the aggressiveness of the company's independent auditor, and the
third is whatever ethical limits may exist.  No doubt there are many
possible scenarios for discussion in business ethics cases involving manager
who are caught between the demands of upper management and their own views
about how the rules apply.

Rick Kunkel
University of St. Thomas